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LONDON (Reuters) - The government plans to cut subsidies for solar panels on homes were ruled legally flawed by the High Court on Wednesday.

The decision was a victory for environmental campaigner Friends of the Earth and two solar companies, Solar Century and HomeSun, who said the plans were creating economic uncertainty.

Energy Secretary Chris Huhne wants to cut feed-in tariff subsidies (FITs) -- payments made to households and communities that generate green electricity through solar panels -- on any installations completed after December 12 this year.

But Mr Justice Mitting, sitting in London, said the minister was "proposing to make an unlawful decision", the Press Association reported.

"Friends of the Earth is urging the government to come up with a new proposal which would allow solar payments to fall in line with reduced installation costs, while ensuring the solar industry continues to play a key part in developing a cleaner future," the group said.

The UK's department of energy and climate change said it would challenge the ruling.

"We disagree with the Court's decision. We will be seeking an appeal and hope to secure a hearing as soon as possible. Regardless of today's outcome, the current high tariffs for solar PV are not sustainable, and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills," Climate Change Minister Greg Barker said.

The proposed cuts would have saved the government an estimated 700 million pounds annually by 2014-15, but solar panel manufacturers and installers had warned they would mean the loss of many jobs.

"We hope this ruling will prevent ministers rushing through damaging changes to clean energy subsidies," Friends of the Earth said.

Britain introduced state subsidies for large renewable energy projects in April last year to encourage growth of new green technologies until they reach commercial scale.

The government had already cut rates for the largest schemes by 40-70 percent from August 1, which had caused an outcry among solar plant developers.

The government says average costs of a domestic solar panel installation have fallen by at least 30 percent since the start of the scheme in April 2010 to 9,000 pounds and that if it had left current tariffs unchanged, consumers would be paying 980 million pounds per year for solar FITs.

As well as the UK, Italy and Germany have also cut subsidies to reduce government spending amid a faltering global economy.

The British government has set a solar installation target of 2,680 MW by 2020, compared with 255 MW in place in October.

SOLAR RUSH

The ruling could make a rush to install new panels in Britain in the past two months unnecessary.

After the government announced its plans to cut its solar subsidies, developers rushed to apply for last-minute projects to get the benefits before they were due to be cut by 50 percent.

The government's plan was to reduce payments for solar projects of up to 4 kilowatts (kW) installed on or after December 12 by 52 percent to 21 pence per kilowatt-hour from April 1, 2012.

"The government has acted unlawfully, and it is right that they are held to account. Now they need to act to rectify the damage, raise the ambition and work with industry to get solar in the UK back on track. We are happy to have cuts but not if they kill the industry," Howard Johns, chairman of the Solar Trade Association, said.

New installations doubled in less than two months to 230,000 projects until December, government data showed.

Weekly solar installations in the week ended December 11 reached an all-time high of 29,880, compared with just 812 projects registered the following week, which included the subsidies deadline, data provided by the Department of Energy and Climate Change showed.

As a result of the high uptake, UK solar power production capacity has risen more than sixfold this year to just below 760 megawatts (MW).

The government decided to cut solar tariffs earlier than expected after the generous subsidy prompted a higher-than-forecast uptake and threatened to deplete a dedicated budget ahead of its planned 2015 end date.

Consumer Focus, a lobby group, said that while it agreed that cuts in the solar subsidy were necessary, "they should not be made at the speed planned by the government, and the scale of the cuts needs further consideration".